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Strategic analysis is concerned with the structuring of

the relationship between a business and its
environment. The environment in which business
operates has a greater influence on their
successes or failures.
There is a strong linkage between the changing
environment, the strategic response of the
business to such changes and the performance.
It is therefore important to understand the forces of
internal and external environment the way they
influence this linkage.
Environmental Analysis

It is the process of monitoring the events and
evaluating trends in the environment, to identify
both present and future opportunities and threats
that may influence the firm’s ability to reach its
Strategists need to analyze a variety of different
components of the environment.
Importance of
Environmental analysis
 It helps to perceive opportunities that might be
explored and threats that need to be contained.
 It provides information on the nature of
competition as a step to develop competitive
advantages and
 It provides avenues for productive cooperation
with other organizations.
To Sum up…….

 To detect key trends and events in the environment

 To develop forecasts and scenarios
 To identify opportunities and threats
 To get information on the competitive environment
 To set appropriate objectives
 To avoid strategic surprise and to ensure long-term
 To analyze and evaluate strategic alternatives
 To formulate winning strategies responsive to
competitive forces
 To develop sustainable competitive advantage
 To work out networks and cooperative ventures.
Inputs in environmental
Important tool for analyzing trends is “Forecasting”.
It involves the development of projections about the direction, scope,
speed and intensity of environmental change.
Inputs to forecast the environment are:
 Environmental Scanning: Identifying early signals of environmental
changes and trends.
 Environmental Monitoring: Detecting meaning through ongoing
observations of environmental changes and trends.
 Competitive Intelligence: Critical information about competitors.

• Scenario-based analysis: It is peeping into the

future, not predicting the future. Determining
the timing and importance of environmental
changes and trends for firms’ strategies and
their management

It is the most popularly used framework to analyze the

It involves 6 external forces:
Political forces
Economic forces
Social forces
Technological forces
Legal forces
Ecological forces
Changes in this forces affect the changes in consumer demand
for both industrial and consumer products and services.
Therefore it becomes important for the organization to identify
and evaluate external opportunities and threats so as to
develop a clear designed strategies to achieve long-term

 Government stability
 Political values and beliefs shaping policies
 Regulations towards trade and global business
 Taxation policies
 Priorities in social sector
 Attitude towards foreign companies
Economic factors

 GNP & GDP trends

 Interest rates/savings rate
 Money supply
 Inflation rate
 Unemployment
 Disposable income
 Business cycles
 Trade deficit/Surplus
Socio-Cultural factors

 Population demographics: Ethnic composition,

aging of population and regional changes in
population growth and decline.
 Social mobility
 Lifestyle changes
 Attitudes to work and leisure
 Education – spread or erosion of educational
 Health and fitness awareness
 Multiple income families

 Biotechnology
 Process innovation
 Digital revolution
 Government spending on research
 Government and industry focus on technological
 New discoveries/development
 Speed of technology transfer
 Robotics
 Satellite communications
 Nano-technology
Legal forces

 Monopolies legislation
 Employment law
 Health and safety law
 Product safety
 Licensing policies
 Quota restrictions
 Forex regulations
Ecological forces

 Air pollution
 Noise pollution
 Water pollution
 Soil pollution
Business are now being held responsible for
eliminating the toxic by products and cleaning
up the environmental damage
Components of External
 Macro environment
 Operating Evironment/Task Envt/Relevant Envt
 Industry and Competitive Environment
Operating Envt:
 Suppliers
 Customers
 Competitors
 Financial Institutions
 Marketing intermediaries(Distributors and retailers)
 Regulatory authorities
 Creditors
Industry and Competitive
An Industry is a group of firms producing a similar
product or services.
Structure and characteristics of the industry in which
a firm operates, and the nature of competitive
forces operating in that industry.